The Federal Reserve issued a cease and desist order to United Texas Bank (UTB) on August 29, ordering it to stop offering crypto services.
The order follows an investigation concluded in May 2023 by the Federal Reserve Bank of Dallas and the Texas Department of Banking, which identified alleged deficiencies in the bank’s corporate governance, supervision and anti-money laundering (AML) compliance.
In addition, financial authorities revealed problems related to foreign correspondent banks and virtual currency customers. In particular, the bank’s risk management and compliance with the Bank Secrecy Act (BSA) and AML requirements have proven to be inadequate.
60 to 90 days to comply
In response to these findings, the crypto-friendly bank must submit several plans to become compliant within 60 to 90 days, as authorities have demanded.
Within 90 days, taking into account August 29 as a start date, the UTB board of directors must present a plan demonstrating compliance with the BSA and AML rules.
In a shorter period of 60 days, the bank must meet a broader set of requirements, such as strengthening the board’s oversight of compliance with BSA and AML policies, a corporate governance plan that includes recommendations from reports from third parties are addressed, and a revised BSA/AML compliance program.
In addition, UTB must also develop an enhanced customer due diligence program, an improved suspicious activity monitoring and reporting system, and a plan to improve compliance with Office of Foreign Assets Control (OFAC) regulations within 60 days.
Notably, the bank must also submit quarterly progress reports detailing its actions to comply with the orders. The order added that since the investigation, UTB has already begun taking measures to strengthen its BSA/AML compliance program and reduce its risk profile.
Second crypto-friendly bank hit within a month
On August 8, the Fed also hit Pennsylvania-based crypto-friendly institution Customers Bank with an enforcement action, motivated by similar reasons, that led to the cease and desist order against UTB.
A day after the Fed released the enforcement action, the Gemini co-founder criticized the crackdown, claiming the episode confirmed that “Operation Choke Point 2.0” was still active.
Operation Choke Point 2.0, as explained by US Senator Bill Hagerty to Bitcoin Magazine in September 2023, is believed to be a coordinated effort led by US President Joe Biden’s administration, which is using its financial watchdog to clamp down on the crypto industry to restrict the country.